Here are the typical negotiation responses after you get in contact with the owner:
a. “I will sell it to you for $800,000” When you get ridiculous offers, I typically go back with what I think they are worth, so for Bulk.com they asked for 800k and I went back at 35k. The owner declined the offer. I could not justify a higher price for that name so I moved on.
b. “I don’t know, what do you think”. This person wants to sell. They are going to negotiate you up for sure. Typically I would go in at 20-30% below my bottom range of my budget. A note of caution here: If you write back that you will buy it for $5,000, just realize that it is a contract that could be enforceable in court. This actually happened to me with a domain called KisKis.com. Always put some language like, “I will buy it for $5,000 pending all terms are agreeable.”
c. “$500” (when you think it is worth $5,000) Ok, great you have a price. Be careful though, if you just say “yes”, you might spook the seller, as they will think they underpriced their domain. This happened to me with Grid.com. In the end, I had to sue the owner to enforce the contract (settled out of court before trial). If the domain in question is just decent and you don’t care if you lose it, then either say “yes” or negotiate down a bit. [Tim: I prefer the latter to avoid seller’s remorse and rescinding of offers.]
d. “$5,000” (when you think it is worth $5,000) Use the info from point C above, but you do not have to be as cautious because you are close to market.